In
a typical December, parcel carriers see their volumes peak mid-month. Last
Christmas, however, more shoppers waited to the last-minute. Amazon Prime
customers, for example, believed they had no reason to order early. In short,
the December peak happened as forecast, but within this multi-week peak was a
much bigger spike in activity concentrated in the last few days before
Christmas that was just too big for UPS, in particular, to handle.
While
all this was occurring, Amazon issued a congratulatory press release that
lauded the fact that they had signed up 1 million Amazon Prime members in the
third week of December and that demand was so great that it had to suspend
enrollment.
But
while delivery failures contributed to the profit hit, which the Amazon Prime
program played a role in, the bigger hit comes from the Amazon Prime program
itself. Amazon Prime is a loss leader
that enables Amazon to steal market share from traditional retailers.
Amazon’s
10-K demonstrated just how big a drag on profits this program really is.
Supplemental information about outbound shipping results showed that for every
$1 in shipping fees Amazon collected, they spent more than $2, for a total
shipping loss of more than $3.5 billion.
That’s not pocket change.
Did
you recently notice that the annual fee for Amazon Prime was increased? Well, now you know why.
Have
you ever heard about the “Zeignark effect”?
It’s named after a Russian psychiatrist who discovered that a waiter
could remember incomplete orders more easily than those that were served and
complete. Further study showed that
people are 90 percent more likely to remember tasks that are undone than those
they completed.
That
makes some sense, but it also causes tremendous stress rather than pride of
accomplishment. There will always be
work to be done, but stop and smell the roses – or the crocuses and daffodils –
occasionally! You’ll be glad you did!
In
a recent Seth’s Blog, Seth Godin had
this to say about money: “Money’s pretty new.
Before money, we traded. My corn
for your milk. The trade enriches both
of us and it’s simple.
‘Money,
of course, makes a whole bunch of other transactions possible. Maybe I don’t need your milk, but I can take
your money and use it to buy something I do need, from someone else. Very efficient, but also very abstract.”
As
we ceased to trade, we moved all of our transactions to the abstract world of
money. And in this abstract world,
“we’re constantly re-evaluating what money is worth. Five dollars to buy a snack box on an
airplane is worth something very different than $5 to buy a cup of coffee after
a fancy meal, which is worth something different than $5 in the grocery
store. That’s because we get to pretend
that the five dollars in each situation is worth a different amount.”
The
value of that five dollars changes in our mind based on what and where we’re
using it.
Godin’s
conclusion is that “pricing based on cost makes no sense whatever, because cost is
not abstract. Pricing based on
value does make sense because value is abstract.” And that value changes in each situation,
just like the value of $5 does for different products and where they are
purchased.
My
conclusion is: What we are willing to pay for something we want has no
relationship to the actual cost of the item, but rather the value it has to us. If that’s true or even partially true, how
should that affect how we price what we sell in our own businesses?
A
sales rep, an assistant and their manager are walking to lunch when they find
an antique oil lamp. They rub it, and a
Genie comes out. The Genie says, “I'll
give each of you just one wish.”
“Me
first!” says the assistant. “I want to
be in the Bahamas, driving a speedboat, without a care in the world.” Poof!
She's gone.
“Me
next!” says the sales rep. “I want to be
in Hawaii, relaxing on the beach with my personal masseuse, an endless supply
of piña coladas and the love of my life.”
Poof! He's gone.
“OK,
you're up,” the Genie says to the manager.
The manager says, “I want those two back in the office after lunch.”
Moral: Always let your boss have the first say.
